Morning Bell: What IS the Fiscal Cliff?

With just a few weeks left in 2012, all eyes in Washington are on Capitol Hill and the “fiscal cliff” negotiations. As usual, Congress and the President are taking highly contentious issues down to the wire before cutting a deal—never a situation that ends well for taxpayers.

Federal Reserve Chairman Ben Bernanke coined the term “fiscal cliff” while urging Congress to avoid a steep dropoff for the economy at the end of the year thanks to tax increases and automatic budget cuts.

There is no agreement right now on how to avoid it, however. When Treasury Secretary Tim Geithner presented the White House’s plan to House Speaker John Boehner (R-OH) last week, Boehner said, “You can’t be serious.” Thus far, President Obama’s answer to the fiscal cliff is a proposed $1.6 trillion in tax hikes plus new stimulus spending—and expanded power for himself to raise the debt ceiling without congressional approval. He suggests only magnifying the policies that brought us to the fiscal cliff in the first place.

Heritage’s Romina Boccia, James Sherk, and Katie Tubb have explained “What’s in the Fiscal Cliff?” and recommended solutions to several of the immediate problems. They note that American individuals, families, businesses, and the military will all be harmed if the nation goes “off the cliff,” so to speak, or if a bad deal is done in Washington. Here are some of the major components of the fiscal cliff.

Tax Hikes

Tax hikes are the centerpiece of the problem, as the largest tax increase in American history is scheduled to kick in on January 1. This tax increase has been dubbed “Taxmageddon.” The authors break down its parts:

Most of this massive tax increase stems from the expiration of the 2001 and 2003 tax cuts implemented under President George W. Bush. There is also the payroll tax cut, the alternative minimum tax patch, and a host of other policies that expire at year’s end. In addition, five of the 18 tax increases built into Obamacare are scheduled to go into effect. Families will bear the brunt of this tax increase among American households, with an average increase of over $4,100 in taxes.

Raising taxes on upper-income earners would affect the nation’s most robust job creators among small businesses. The effects of this would be devastating to the economy. The Congressional Budget Office is already forecasting another recession could hit in 2013. Congress should extend current tax policies for all Americans.

Defense Cuts

The fiscal cliff includes required cuts to defense spending. The cuts to America’s defenses known as “sequestration” were never supposed to happen. They are kicking in because a congressional “super committee” failed to reach a deal on spending cuts after last summer’s deal to raise the debt ceiling. Now these cuts are poised to gut military readiness because of a previous Washington negotiation gone wrong.

A Continual Medicare Problem

Medicare’s finances are in grave trouble. Years ago, Congress decided to reduce Medicare spending by paying doctors less to treat Medicare patients. That was an unsustainable idea—and Congress realized it later. Every year, instead of allowing the automatic cuts to doctor pay, Congress has made a temporary patch called the “doc fix” that keeps payments coming—which helps delay substantial Medicare reform. Now, “Unless Congress patches together another doc fix agreement before December 31, physicians will see a 27 percent decrease in pay, a situation that will make it unaffordable for many doctors to continue accepting Medicare patients.”

After preventing the cuts once again (which is likely to happen in any deal), the new Congress should pursue real Medicare reform that would permanently eliminate this problem.

Extending Unemployment Benefits

Federal funding for extended unemployment benefits is also set to expire at the end of this year. Extending these benefits again is one of the issues on the fiscal cliff bargaining table.

Although the average length of unemployment is 40 weeks, these benefits are available for 73 weeks. In a rough economy, many people need unemployment benefits. But “extending UI also increases unemployment and can hurt those it is meant to help. Extending benefits for too long encourages the unemployed to postpone job searches or hold out for something that may not be attainable.” While a deal is likely to extend these benefits, Congress should set the benefits at a more realistic 52 or 60 weeks.

This is a complex set of problems that should not be glossed over in a hasty deal.

Obamacare’s HHS mandate has caused a controversy about the role of the government in mandating that businesses provide contraception to employees. On the world stage, the United Nations has declared contraception a “universal human right.”

Join The Discussion

We are going over the cliff anyway. Why not agree to everything Obama presents and be sure to get his name on it. I want him to be driving when the bus hits the bottom. We need his name on everything! Let's get this over with. The sooner the better. Paint his name on the side of the bus, then prepare for the impact that is coming no matter what gets done by congress. Fighting him now places the GOP in the blame position. Which will only delay the future solution.

Because to do so would legitimize usurpation of congressional powers in defiance of the constitution. Obama has, for all purposes, assummed dictatorial powers with an unprecidented number of executive orders and the appointment of Czars who are accountable to no one. If he should consolidate his power it won't matter because the Republic will have been destroyed and Obama will be King.

And give the executive branch a rather broad authority of being able to rescind the debt ceiling at whim? No way. I understand your point, but to give in would give the president too much power and disrupt a major facet of constitutional checks and balances.

I think they need to get this thing settled. I am still looking for work myself. I am on Emergency unemployment compensation that is ending on the 29th. if I cant get a job by then It's only a couple months until I am homeless. I Am most concerned about the unemployment because it personally effects me. But I also would like to point out. It isn't a million or two people losing benefits into 2013. By the END of 2013 23 million americans will be unemployed and out of benefits.

Which is why Obama needs to stop with this useless class warfare tact and adopt pro-growth policies to get the country moving. As long as Obama and the Dems focus on how to vilify the very people who create jobs in this country, for no other reason than it fits their socialist ideology, then the country will continue to suffer high unemployment and a weak economy.

No matter how you slice it, spending cuts and/or revenue increases will cause suffering. The question to ask is what sector will suffer the least harm. A compassionate government is one that will assess the impact of measures and act accordingly.

I do not agree with the roll over as suggested above. Stick to conservative principals and do not make a deal. I truely believe that the dems did not intend to make a deal anyway, so don't waste your efforts negotiating with an executive branch or senate that does not negotiate in good faith. We will cut the budget without anyones name on it and we will raise revenues without anyones name on it. Now, can we truely still spend within the budget or does that have a work around already. Do not raise he debt ceiling either.

Pete…have you ever tried to prevent a child from hurting themselves….well I have…I have warned verbally, warned through a swat on the butt…warned by example of consequences….begged and pleaded…ultimately the child if determined, will test fate by a desire or need to go through with it anyway…nothing I said or did made a difference…until finally the outcome (reality) was their personal learning experience. Even going back to the old behavior having forgot the pain of previous decisions…it isn't until the true learning moment that we can move on. I agree that Obama should be handed everything he wants…the republicans will be blamed anyway. Supposedly 52% of this country voted for him because they love his policies (or because he's black) so I believe we hand him his ideas on a silver platter…we (conservatives) are strong, resilient, determined, intelligent, and we will rebuild this country, but the fire must happen before we can start with a clean slate.

I agree and this is a great way to explain why. I also do not believe there is a imminent fiscal cliff. This is a pro word out of the current government to pass there progressive socialist fascist agendas. Tough times ahead I agree. The fiscal cliff will be when the debt becomes higher than we can pay.

All you see Obama doing is trying to leverage the fiscal cliff to mask yet another power grab in the form of demanding Congress cede its budget limit authority to him forever. On top of that, he wants more useless "stimulus spending" to reward the same supporters of his campaign as last time. No real spending cuts. Just promises to MAYBE talk about in the future, which anyone with a brain has to realize means "go to hell" to the Republicans and the American people who believe in responsible government.

Obama is all about class warfare, envy politics and racial division. To expect Obama to somehow make a magical transformation to be a fiscally responsible leader in his second term is pure fantasy. If we go over the fiscal cliff, then Obama gets exactly what he ultimately wants. Higher taxes on everyone, which will be spent on more government, not debt reduction.

As a service to everyone, Heritage needs to start formulating plans for how people who have lived financially responsible lives are going to survive in the new reality of a radically socialized America, that is more reflective of the failed and bankrupt southern European countries than what we've known as America before Obama. I look forward to seeing such plans in the near future.

The ship has already hit the "berg" while you sit around discussing a "fix" regardless of how ideal it is. The magnificent craft America is sinking and you refuse to acknowledge it. Sink with it people, you think staying will it is the proper medication; well, call me in the morning when you get up to calamity!

Let it happen! Go over the cliff and then start a proactive approach to fixing the issues. More tax revenue is what Obama whats and everyone should have more skin in the game. Defense cuts – get out of Afganistan! Medicare – so what, let Obamacare take care of the few who can't see the doctor. Unemployment – so what – may be they will now go out and get a job.
The fixes – dump the tax code and make it a flat tax, no deductions, no exclusions. Stop spending – the House has control so use the control. No more pork projects. Get rid of Pelosi and Reid! Fix Medicare! Creat some jobs! Overall – we need real leader – Obama needs to stay home instead of taking his million dollar vacation to HI.

All situations are simple if the individuals focus on the answer and not the problem. I'm very common sense and the answer is simple but no one wants to hear it. Cut the payroll in Washington, have the senators and house cut their payroll and retirement programs back, their not earning it anyway. Put a 10-15% tariff on all imports regardless if it's foreign or domestic, investigate and simplify Medicare and close the loop holes and quit allowing pharmaceutical companies and retirement homes from running it, quit stealing from Social Security, look closely at the Medicaid problem and its loop holes. Quit giving our money away to foreign countries when we need it to rebuild our country and disaster areas. Always remember the Geithner and Bernanke are Obamas pawns and all they want to do is destroy America with their supposed stupidity. Always remember that Obama isn't running anything he's just a pawn, that's why he says one thing and does another.

rjKatz, I love your comments! "He" has studied under the "Alinsky Model" very well. He is now applying it, Chaos and ultimate Control. Why can't we the people and republicans if they want to, stop fighting about policy and elections. Those days are over. He has control over everything! So, now how do we approach the downfall of our country. How do we slow him down and possibly stop him? We hear about all the flying around he is doing and complain about the cost, well we better wake up, he is a "salesman" and is kissing up to people in other countries so when he becomes the "new world leader" they will all like him!!! Come on people, let's look at what we have here!!!!! ON OUR KNEES AND PRAY!!!

In addition to my last comment please remember that one earns respect its not free and integrity is based on what one does not says. This administration hasn't earned either one with all the dishonesty and lies to the American public. They have focused totally on their agenda and avoided the real issues which have now came to surface.

I also need to say that these new coined the phrased words out of Washington just keep the Americans on question and confused and that is exactly what the Demo like because confusion is their way of conquering.

Sixty Christmas trees in the White House this year and an extended Christmas vacation. BO is not brilliant and could care less about the America many of us love. Don't offer him a damn thing right now. We are in mourning about the outcome of this election and the number of unimformed people in this country and those, who think the government owes them stuff. Get big government out of your lives and prosper.

Since when is the United States under the law of the U.N.? What difference does it make to us what they think? Aren't we a republic? And the U.N. deciding that contraception is a human right is the same as saying that we are responsible to pay for everyone to have sex!!!!

this has been going on for years. the only way to get those who bow to the president and their attention – is – let it happen captain. yes – if obama has his drivers license and is authorized to drive the bus – let him drive it over the cliff – at least there will be mandatory cuts – then he can go back and blame the republicans because he will not be able to keep his promise – NO TAX INCREASE FOR THE MIDDLE CLASS. congress has been lying to the american people for years and to ask the approval whereby the president could decide on the deficit ceiling for the united states – this is exactly what he wants – as far as credit rating (who cares) the rating agencies have already reduced out credit rating. on unemployment benefits – enough is enough. time for those folks to get out and agressively seek employment – i pay taxes, unfortunately – the federal government spends the money as they see fit. we are suppose to have mature adults in congress – if they can't submit a reasonable budget, how do they handle their personal checking account. forgot to mention – I assume congress pays their income taxes when due – this includes the treasury secretary.

The Left, for at least the last decade (even longer when they mention the Reagan Tax-cuts) have been convincing themselves that economic conditions in the United States would be just fine if only Americans paid higher taxes.
Well, now they're going to, in the words of H.L. Mencken, get them good and hard.
Enjoy what you asked for, you own it!

Obama wants to go over this cliff and then rescue all of the ignorant masses and be hailed as the king! He will control all aspects of the government and we will never get him out of power. We have lost our country and I really do not know when we will be able to get it back.

"Maybe we should go over the cliff so that the 52% who voted for him get hit with all the tax increases and realize what the real cost of all this deficit spending is."
Unfortunately, of that 52%, most don't pay taxes, so won't feel the pinch directly, they will get it thru higher costs of goods and services…and since many of them rec'v their "income" thru the government, all they will do is ask for more. Then they will blame Republicans. (yes they share in the blame game, too). More frightening is the impact on Medicare. Millions of seniors will find their doctors suddenly closing the doors to Medicare patients. I understand that "entitlements and benefits" are sucking the lifeblood from the budget, taking well over half of the funds coming in and something must be done about it immediately. Read Norm Franz' book, Money and Wealth in the New Millennium.

Obama has been chipping away at the Constitution (he swore to uphold) ever since he was elected. Now he wants the House Of Representatives to divest itself of its Constitutioal "Power of the Purse" and give it to him. Imagine our debt if Obama ever got his hands on the checkbook!

I am very afraid of what Obama is doing to our country. It is clear that he does not want to compromise on anything. He may be a pawn but he has much power. He was voted in and we all know there was a lot of voter fraud happening at the voting booths. So now what do we do. I am so so tired about hearing this fiscal cliff and all the dems want to do is blame the republicans on everything. If we truly hold the purse strings, why can we just say no and stand firm. Just let Obama do what he wants and then the country will truly just fall apart. I am still very much afraid and the American People will truly suffer and that means everyone not just the poor but the small business owners. We all know that the small business owners are not wealthy. All Obama wants is to redistribute the wealth and to fundamentally transform our America. I feel very lost and not with much hope for our country. Maybe it is just up to God!!!

Bear in mind, the $250,000 base for increasing taxes will "exclude" all the union people who voted for him. If this group get a tax increase there will be hell to be paid!!!! He won't let that happen, that is why we have that amount base amount, to protect them from getting a tax increase. "This guy is smart, get what he wants and keep his voting base!!!!

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